THE  CURRENCY. 


BY 


JOSEPH  S.  ROPES. 


BOSTON: 

NICHOLS  AND  NOYES. 
1868. 


CAMBRIDGE  : 


TRESS  OF  JOHN  WILSON  AND  SON. 


tjy  S.  Vaught 


3 3 

u ^ 3, 1 c-  SEMINAR 


PREFACE. 


The  author  of  this  pamphlet  has  no  personal  end  to  gain  ; no 
new  theory  to  propound ; not  even  a pet  financial  scheme  to 
advocate.  He  simply  desires  to  explain,  as  simply,  briefly 
and  distinctly  as  possible,  the  plain  facts  and  principles  re- 
lating to  Paper  Currency,  and  their  application  to  our  present 
situation.  His  sole  object  being  to  promote  sound  views  and 
a healthy  public  sentiment  on  this  subject,  he  has  purposely 
avoided  all  controversy  and  all  discussion  of  doubtful  matters. 


o 


£ That  even  such  elementary  knowledge  is  needed,  we  have 
j melancholy  proof  in  the  absurd  schemes  and  assertions  to  be 
c1  found  daily  in  the  most  widely  circulated  journals,  and  heard 
*-  even  in  the  halls  of  Congress.  In  these  brief  pages  the 
author  has  sought  merely  to  contribute  his  mite  towards  the 
C diffusion  of  truth  and  the  triumph  of  common  sense. 


Boston,  May  1,  1868. 


THE  CURRENCY. 


The  principles  of  currency  and  finance  are  simple,  and  easily 
understood ; but  it  is  often  difficult  to  apply  them,  and  especially 
to  re-establish  their  operation  when  they  have  been  for -a  time 
disregarded.  It  is  hoped  that  a plain  statement  of  these  prin- 
ciples, and  a careful  examination  of  the  facts  to  which  they 
apply,  may  aid  many  honest  and  intelligent  minds  among  us  to 
judge  of  the  real  state  of  affairs,  to  understand  better  the  real 
causes  of  existing  evils,  and  the  proper  remedy  to  be  applied. 
At  least  the  attempt,  however  imperfect,  may  elicit  some  truth, 
and  expose  some  error. 

MONEY. 

Money  is  that  commodity  which  is  employed  in  any  com- 
munity to  measure  the  value  and  facilitate  the  exchange  of  other 
commodities.  With  us,  and  other  commercial  nations,  the  com- 
modity adopted  almost  exclusively  for  this  purpose,  and  emi- 
nently suited  to  it,  is  gold.  For  the  protection  and  convenience 
of  the  community,  the  Government  coins  this  gold ; that  is,  it 
divides  it  into  suitable  pieces  of  uniform  weight  and  fineness,  the 
unit  of  which  is  called  a dollar.  As  this  coin  is  to  measure 
value,  it  must  of  course  itself  possess  value  ; that  is,  it  must  cost 
as  much  labor  to  procure  the  dollar  as  to  procure  the  articles  for 
which  it  is  to  be  exchanged.  This  value  belongs  to  the  metal 
itself,  and  is  not  communicated  by  the  Government  stamp,  which 
merely  certifies  the  weight  and  purity  of  the  metal  contained  in 
each  coin.  If  a gold  coin  were  beaten  into  any  other  shape,  so 
as  to  be  no  longer  a coin  at  all,  it  would  still  retain  its  intrinsic 
value,  and  could  be  exchanged  for  about  as  much  of  other 
commodities  as  before. 


6 


CREDIT. 

It  is  obvious  that,  though  all  values  are  measured  by  money,  a 
great  many  exchanges  of  commodities  may  be  effected  without 
the  actual  employment  of  money  itself.  A merchant  may  ex- 
change cotton  for  grain,  or  grain  for  cotton ; a farmer  may  sell 
his  wool  to  the  manufacturer,  and  receive  in  exchange  the 
clothing  needed  for  his  family.  The  tailor,  the  shoemaker  and 
the  baker  may  supply  each  other  with  the  products  of  their 
labor,  and  their  mutual  accounts  may  all  be  square  without 
a single  dollar  passing  between  them.  In  all  these  transactions, 
however,  the  standard  of  value  is  as  essential  as  if  every  one  of 
them  had  been  settled  by  the  actual  payment  of  coin.  In  other 
words,  every  thing  bought,  sold,  or  exchanged  must  be  measured 
in  dollars , or  there  would  be  no  regularity  in  prices,  and  no 
certain  basis  of  exchange.  Every  buyer  must  furnish,  and 
every  seller  must  receive,  an  equivalent  in  dollars,  or  in  some- 
thing mutually  agreed  to  be  of  the  same  value. 

But  these  exchanges  are  not  all  made  at  once,  and  are  not 
always  equal  in  amount.  Where  people  are  rich,  and  money 
abundant,  the  differences  are  easily  paid  in  coin ; but  where  this 
is  not  the  case,  or  even  for  the  sake  of  mere  convenience,  people 
may  allow  their  accounts  to  go  on  until,  at  the  end  of  the  month 
or  year,  a small  amount  of  money  may  settle  a large  amount  of 
exchanges.  This  is  giving  and  taking  credit ,*  and,  as  long  as 
no  credit  is  given  beyond  the  ability  of  the  debtor  to  make  it 
good,  it  is  a legitimate  and  beneficial  system. 

But  this  system  of  credit  may  be  extended  still  farther.  A 
man  who  has  a large  amount  of  money,  deposits  it  for  safe 
keeping  in  a bank,  where  he  can  hold  a rich  firm  or  corporation 
responsible  for  it.  When  he  wants  to  use  it,  instead  of  drawing 
out  the  coin,  which  the  receiver  would  probably  again  deposit  in 
a bank,  he  gives  an  order  (called  a check)  on  the  bank  for 
the  amount,  or  he  takes  the  promise  of  the  bank  (called  a bank- 
note) to  pay  it  to  the  bearer.  In  this  way  he  transfers  to  whom 
he  pleases  the  right  to  receive  the  money  from  the  bank.  Here 
we  have  credit,  not  only  economizing  the  use  of  money,  but 
actually  taking  its  place  in  circulation ; and,  so  long  as  the 
people  who  use  these  bank  promises  are  certain  of  having  them 


7 


redeemed  on  demand,  they  will  prefer  them  to  the  coin  itself, 
which  is  not  so  easily  carried  about,  or  remitted  to  a distance  ; 
but  if  there  is  no  such  certainty,  it  is  evident  that  checks  and 
bank-notes  cannot  fulfil  the  office  of  coin. 

Now  it  is  proved  by  experience,  that  when  banks  are  thus 
known  to  be  ready  to  redeem  their  promises  in  coin,  a large 
part  of  the  coin  due  from  them  is  never  called  for,  because  the 
people  prefer  to  use  checks  and  bank-notes  instead,  and  they 
even  give  to  these  paper  promises  the  name  of  money  ; and  as 
the  banks  cannot  afford  to  keep  so  much  coin  lying  idle,  and  to 
do  all  the  work  of  transfer  for  nothing,  they  pay  themselves  by 
lending , on  interest,  a part  of  the  money  thus  left  in  their  keep- 
ing, to  those  who  can  profitably  employ  it,  and  can  be  trusted  to 
repay  it  when  required.  In  this  way,  a large  part  of  the  gold 
coin  belonging  to  the  people  finds  its  way  out  of  the  country,  in 
exchange  for  commodities  imported  from  abroad,  enough  only 
being  retained  to  secure  the  ability  of  the  banks  to  meet  any 
probable  demand. 


CURRENCY. 

In  this  way  the  whole  mass  of  coin  and  credit  settles  into  a 
kind  of  permanent  equilibrium.  That  part  of  it  which  is  used 
by  the  people  as  money,  constitutes  the  currency  of  the  country ; 
the  remainder  being  held  in  reserve  for  the  purpose  of  redeem- 
ing it.  The  currency  thus  consists  of  three  parts  : first,  the  coin 
in  actual  circulation,  in  men’s  pockets  and  tills  and  cash-boxes, 
the  amount  of  which  (except  small  silver  coin)  has  always 
apparently  been  small  and  insignificant  in  this  country ; secondly, 
bank-notes,  of  which  the  smaller  ones  discharge  most  of  our 
lesser  daily  payments,  and  the  larger  are  chiefly  used  by  banks 
and  bankers ; thirdly,  the  amounts  due  from  banks  to  their 
depositors,  and  made  available  chiefly  by  checks.  These 
amounts,  called  “ bank  deposits,”  constitute  by  far  the  most 
important  part  of  the  currency  used  for  the  large  transactions  of 
merchants,  bankers,  corporations,  &c. 

Before  the  issue  of  United-States  notes,  the  whole  currency 
of  the  country  was  comprised  under  these  three  heads,  embra- 
cing whatever  passed  current  in  the  community  as  money,  and  by 
which  payments  could  be  effected,  and  debts  discharged.  The 


8 


reserve  of  gold  coin  held  by  the  banks  was  merely  a provision 
for  redeeming  their  own  currency,  and  must  not,  therefore,  be 
counted  as  currency  itself,  so  long  as  it  was  kept  for  that  pur- 
pose. But,  so  long  as  this  coin  remained  in  the  banks  uncalled 
for,  it  proved  clearly  that  the  paper  currency  was  on  a par  with 
gold  : otherwise  every  holder  of  a check  or  a bank-note  would 
have  demanded  payment  in  coin. 

CURRENCY  OF  THE  UNITED  STATES. 

In  ^$61,  before  the  outbreak  of  the  rebellion,  the  currency  of 
the  United  States  consisted  of  about  $202,000,000  of  bank- 
notes, $257,000,000  of  bank  deposits,  and  probably  not  far 
from  $100,000,000  of  gold  and  silver  coin  in  actual  circulation 
among  the  people,  — say  about  $550,000,000  of  available  ready 
money,  — of  which  $459,000,000  was  due  from  the  banks  to 
the  people ; and,  though  less  than  one-fifth  ($88,000,000)  was 
actually  on  hand  in  specie  (gold  and  silver  coin),  yet  the  people 
were  so  well  satisfied  of  the  security  of  their  money,  that  they 
did  not  call  for  what  they  could  have  had,  but  used  notes  and 
checks  instead.  It  is  evident,  therefore,  that  on  the  whole,  of 
course  with  some  local  exceptions,  the  bank  currency  of  the 
country  was  then  at  par  with  specie. 

To  make  the  case  still  plainer,  we  may  say  that  the  people  of 
the  United  States  possessed  in  1861  about  $550,000,000  of 
ready  money,  equal  in  available  value  to  gold  coin ; but,  of  this 
amount  about  $370,000,000,  not  being  needed  in  specie , was 
permanently  loaned  through  the  banks  to  the  merchants,  manu- 
facturers, and  others  who  could  employ  it  profitably  and  pay 
interest  for  the  use  of  it.  And,  as  we  have  said,  the  paper 
promises  of  the  banks  took  the  place  of  this  coin  with  perfect 
safety  and  convenience  to  the  people,  except  where  the  affairs 
of  banks  were  mismanaged. 

EFFECT  OF  AN  INCREASE  OF  CURRENCY. 

We  have  said  that  the  money  and  credit  of  a country  settles 
into  an  equilibrium  more  or  less  permanent.  The  people  require, 
and  can  afford  to  hold,  a certain  amount  of  ready  money,  in  due 
proportion  to  the  wealth  and  population  of  the  country.  This 
amount  may  be  increased  suddenly  by  a large  importation  of 


9 


gold  from  abroad,  or  by  the  issue  of  additional  bank-notes  or 
the  artificial  increase  of  bank  deposits ; for  if  a bank  wishes 
to  lend  one  of  its  depositors  any  amount  of  money,  it  merely 
credits  him  with  that  amount  on  its  books ; and  thus,  without 
itself  receiving  any  additional  money,  it  creates  an  additional 
amount  of  currency,  which  answers  all  the  purposes  of  money, 
so  long  as  the  bank  continues  in  good  credit. 

Now  what  will  be  the  effect  of  such  an  increase  of  currency, 
when  the  people  already  had  all  they  were  willing  or  able  to 
keep  on  hand  and  to  use  for  their  daily  wants  ? Evidently  it 
will  be  redundant ; that  is,  those  who  hold  the  surplus  will  want 
to  get  rid  of  it.  They  can  only  do  so  by  exchanging  it  for 
something  else,  which  they  want  more ; but,  as  their  neighbors 
already  have  all  the  money  they  can  afford  to  keep,  the  latter  will 
not  make  the  exchange  at  the  old  prices,  but  will  ask  more ; and 
then  they  themselves  must  also  pay  higher  prices  to  others,  for 
the  same  reason,  till  at  last  perhaps  the  prices  of  nearly  all 
commodities  will  be  raised.  But,  as  this  effect  has  not  been  pro- 
duced in  other  countries,  it  becomes  more  profitable  to  import 
foreign  goods,  which  cost  the  same  as  before,  and  will  now  com- 
mand a higher  price  here  ; and,  as  these  goods  must  be  pur- 
chased abroad  with  gold,  some  of  the  holders  of  bank  promises 
will  now  demand  their  payment  in  gold,  and  send  it  abroad. 
This  of  course  diminishes  the  banks’  reserves  of  coin,  and  leads 
to  a curtailment  of  currency ; that  is,  the  banks  for  a time  lend 
less  of  their  promises  to  borrowers,  for  fear  they  should  not  be 
able  to  redeem  them.  This  diminution  of  currency  operates,  of 
course,  in  the  opposite  direction,  and  causes  prices  to  decline 
until  the  equilibrium  is  restored. 

As  long  as  all  currency  is  redeemed  on  demand  in  coin,  and 
banks  are  managed  with  common  prudence,  these  fluctuations  of 
currency  adjust  themselves  with  great  facility  to  the  wants  of  the 
community  : when  we  have  too  little  money,  gold  comes  in,  and 
when  we  have  too  much,  gold  goes  out,  by  the  mere  operation 
of  the  natural  laws  of  trade.  But  when  the  paper  promises  of 
the  banks  can  no  longer  be  redeemed,  the  whole  mass  of  values 
is  thrown  out  of  equilibrium,  and  great  alarm  and  loss  ensues. 

2 


10 


IRREDEEMABLE  CURRENCY. 

If  the  increase  of  paper  currency  becomes  so  large  as  to  make 
its  full  redemption  impossible,  it  will  in  time  settle  down  to 
about  the  value  at  which  it  can  be  redeemed.  This  was  the 
case  in  Russia,  where  such  vast  amounts  of  paper  money  were 
issued  during  the  wars  with  Napoleon,  that  the  people  could 
only  sustain  it  at  about  one-fourth  of  its  nominal  value,  and  it 
was  finally  redeemed  at  the  rate  of  two-sevenths  for  one. 

But  if  the  volume  of  paper  currency  is  largely  increased,  and 
yet  with  the  intention  and  expectation  of  ultimately  paying  it  in 
full,  the  case  becomes  greatly  complicated.  On  the  one  hand, 
as  we  have  shown,  the  people,  being  no  richer  than  before,  can- 
not afford  to  keep  more  money  lying  idle,  and  earning  nothing. 
On  the  other  hand,  when  prices  of  all  commodities  have  ad- 
vanced/ so  that  paper  has  become  greatly  depreciated,  the  people 
are  tempted  to  hold  it  rather  than  gold  or  other  merchandise,  in 
hope  of  sooner  or  later  having  it  redeemed  in  gold,  dollar  for 
dollar.  There  will  thus  be  incessant  fluctuation  in  the  ex- 
changes of  paper  money  for  other  commodities,  tending  to 
unsettle  all  business,  and  greatly  to  demoralize  the  public  mind. 

PRESENT  STATE  OF  OUR  CURRENCY. 

At  present,  as  is  well  known,  the  currency  of  the  country  is  com- 
posed wholly  of  paper.  It  consists,  in  round  numbers,  of  about 
$400,000,000  United-States  legal-tender  notes,  $300,000,000 
bank-notes,  and  above  $500,000,000  of  bank  deposits.  Allow- 
ing $200,000,000,  or  more,  of  this  to  be  held  by  banks,  &c.,  as 
a reserve  for  purposes  of  redemption,  at  least  $1,000,000,000 
is  held  by  the  people  as  currency , available  only  to  make  pay- 
ments. This  is  nearly  or  quite  twice  as  much  as  we  had  in 
1861  on  a specie  basis;  and  we  find  accordingly,  as  we  might 
have  expected,  that  prices  of  nearly  all  the  principal  necessaries 
of  life  (with  some  exceptions  from  special  causes)  have  been 
nearly  or  quite  doubled.  This  could  not  be  otherwise ; for  the 
people,  as  a whole,  can  hardly  afford  to  hold  more  idle  money 
than  in  1861,  while  they  are  compelled  to  hold  irredeemable  paper 
promises  to  about  double  the  amount  of  currency  they  held  then. 
Consequently,  they  have  been  obliged  to  exchange  it  for  commod- 


11 


ities  at  prices  about  double  what  they  formerly  paid  ; and  yet,  as 
they  all  hope  that  at  some  time  it  will  be  redeemed  in  coin,  they 
keep  it  in  a state  of  incessant  fluctuation,  which  checks,  to  a 
fearful  degree,  the  development  of  their  industry  and  enterprise. 

EVILS  OF  AN  INFLATED  CURRENCY. 

A currency  is  said  to  be  redundant  when  there  is  more  of  it 
than  is  wanted  for  legitimate  purposes  of  exchange.  This  was 
the  case  with  our  present  legal  tenders  and  bank-notes  when 
they  were  first  issued.  But  when  the  people  have  been  com- 
pelled to  use  it  until  prices  have  risen,  and  there  is  no  longer 
any  apparent  surplus  of  paper,  it  is  no  longer  redundant,  but 
inflated.  It  then  no  longer  lies  in  masses,  as  it  were,  on  the 
surface,  but  has  become  mixed  and  incorporated  with  all  our 
values,  — puffing  them  up  to  large  nominal  amounts,  but  really 
adding  nothing  but  a false  pretence  to  what  they  were  before. 
This  process  is  most  justly  styled  inflation , and  its  effects  are 
evil,  and  only  evil,  in  every  direction.  Some  of  them  we  will 
try  to  point  out. 

1.  The  fundamental  evil  from  which  all  others  spring  is,  of 
course,  the  displacement  of  the  only  sound  standard  of  value. 
The  property  of  the  people  of  the  United  States  is  estimated  at 
$15,000,000,000,  or  more,  and  their  annual  production,  or  in- 
come, at  about  $4,000,000,000.  All  the  daily  valuations  and 
exchanges  connected  with  this  vast  mass  of  wealth  and  expendi- 
ture are  now  dependent  on  a mere  uncertain  paper  promise. 
The  market  value  of  a greenback  depends  mainly  on  two  ele- 
ments,— the  degree  of  expectation  in  the  holders  that  it  will 
be  redeemed,  and  their  ability  to  wait  for  its  redemption.  Per- 
haps no  two  persons  in  the  whole  number  possess  both  these 
elements  in  exactly  the  same  proportions,  nor  does  any  one 
often  possess  them  for  two  days  exactly  alike.  Consequently, 
the  average  must  be  perpetually  unsettled,  and  values  of  many 
kinds  at  least  are  subject  to  the  wildest  fluctuations.  We  have 
seen  gold  vary  from  nearly  300  per  cent  to  less  than  150  within 
not  many  months ; petroleum  rise  in  the  same  way  from  twenty 
cents  to  nearly  a dollar,  and  decline  again  below  twenty-five 
cents  a gallon  ; flour  advance  in  a few  weeks  from  six  to  fifteen 
dollars  a barrel.  In  our  daily  purchases  of  food,  clothing,  and 


12 


other  necessaries,  the  fluctuations,  though  less  marked,  have 
been  equally  unsatisfactory.  These  results  may  indeed  be 
attributed  to  speculation ; but  what  makes  such  speculation  pos- 
sible ? With  a currency  regulated  by  the  real  and  steady  values 
of  specie,  these  tricks  upon  the  public  would  rarely  be  at- 
tempted, and,  if  attempted,  would  be  sure  to  fail  in  the  end. 
But,  so  long  as  we  measure  values  and  pay  our  debts  in  mere 
indefinite  promises,  we  have  no  protection  against  the  most  un- 
scrupulous schemes. 

2.  An  inflated  currency  discourages  productive  industry,  and 
so  tends  greatly  to  impoverish  the  community.  The  two  great 
agencies  combined  in  the  production  of  wealth  are  labor  (includ- 
ing the  work  both  of  head  and  hands)  and  capital,  which  is 
merely  the  product  of  previous  labor,  laid  up  to  be  used  in 
further  production.  Our  improved  lands,  our  houses,  shops, 
factories,  tools,  machinery,  stores  of  food  and  clothing,  money 
( real  money)  with  which  these  things  can  be  purchased,  — 
all  these  are  capital ; and  as  in  this  country  almost  every  man 
has  more  or  less  of  these,  and  almost  every  man  works  with 
hands  or  head,  almost  all  of  us  are,  in  our  degree,  botli  la- 
borers and  capitalists.  Now,  how  does  an  inflated  currency 
affect  the  laborer  ? First,  by  universal  testimony,  it  raises  the 
cost  of  his  living  long  before  it  raises  the  rate  of  his  wages ; 
and  next,  as  it  furnishes  speculators  with  the  means  of  artificially 
increasing  the  cost  of  his  food  and  clothing,  while  it  gives  him 
no  additional  facilities  for  enforcing  the  payment  of  higher 
wages,  it  keeps  him  at  a disadvantage  until  the  currency  is 
either  restored  to  its  true  value,  or  permanently  depreciated  by 
being  redeemed  at  a discount,  — that  is,  partially  repudiated. 
This  produces  disagreements  with  employers,  strikes,  idleness, 
and  disorders  of  all  kinds,  perhaps  the  wanton  destruction  of 
property,  and  a constant  tendency  to  leave  honest  work  and 
take  to  speculation,  ending  too  often  in  ruin. 

How  does  inflation  affect  the  capitalist?  First,  by  deprecia- 
ting all  his  money-property,  and  a large  part  of  the  rest.  If  he 
invests  his  money  in  ships,  manufactures,  or  any  other  produc- 
tive enterprise,  he  must  pay  far  higher  nominal  prices  than  he 
would  have  to  pay  on  a specie  basis ; so  that,  when  a sound  cur- 
rency is  restored,  both  his  property  and  income  in  dollars  must 


13 


be  greatly  diminished.  It  is,  of  course,  much  better  for  him  to 
invest  his  money  in  United-States  bonds,  where  he  will  receive 
both  principal  and  interest  in  coin.  Still  more  is  this  the  case 
when  his  own  capital  will  not  suffice  for  the  undertaking  he  con- 
templates. If,  for  instance,  he  should  invest  $50,000  of  his 
own  in  any  enterprise,  and  borrow  $50,000  more  to  complete  it, 
he  might  reasonably  fear  that  the  income  from  the  whole  might 
hereafter  not  exceed  the  amount  of  interest  he  has  to  pay  on 
the  amount  borrowed,  so  that  his  own  capital  might  be  entirely 
lost. 

But  by  far  the  greatest  mischief  to  be  apprehended  here  is, 
that  capitalists  will  either  use  their  money  to  speculate  them- 
selves, or  will  lend  it  to  others  for  that  purpose.  Speculation, 
as  we  have  seen,  is  greatly  promoted  by  the  constant  fluctuations 
of  prices  resulting  from  the  absence  of  any  fixed  or  definite 
standard  of  value.  Multitudes  are  tempted,  by  the  hope  of.  sud- 
den profits,  to  embark  in  every  species  of  gambling.  A few 
are  successful ; and  these  generally  spend  lavishly  the  wealth 
they  have  obtained  so  easily.  The  great  majority  fail,  and  have 
to  be  supported  by  the  earnings  of  their  neighbors.  Neither  of 
these  classes  produce  any  thing  of  value,  or  render  any  service 
to  the  community ; but,  on  the  contrary,  they  both  do  all  they 
can  to  impoverish  it. 

3.  It  is  evident,  therefore,  that  the  effect  of  inflation  on  a 
community  is  most  demoralizing.  When  laborers  cannot  count 
on  just  wages  and  steady  employment ; when  capitalists  cannot 
safely  take  measures  to  employ  labor ; when  regular  business  is 
changed  to  gambling,  and  gambling  becomes  a regular  business ; 
when  farmers  find  it  more  profitable  to  mortgage  their  farms,  and 
speculate  with  the  borrowed  money  in  land,  than  to  raise  food  ; 
and  banks  and  merchants  can  make  more  money  by  helping  to 
withhold  merchandise  from  consumption  than  by  aiding  to  sup- 
ply the  wants  of  the  people,  — common  sense  tells  us  that  things 
must  be  in  a bad  way.  This  explains  the  thronging  of  multi- 
tudes towards  the  great  centres  of  speculation,  the  uneasy  rest- 
lessness pervading  the  community,  the  incessant  plots,  “ corners,” 
and  intrigues  of  all  kinds  on  the  stock  exchange ; the  defalca- 
tions, robberies,  suicides,  and  crimes  of  every  sort  connected 
with  money  matters,  which  have  become  a matter  of  daily 


14 


occurrence  among  us.  But  we  need  not  enlarge  upon  this 
head. 

4.  An  inflated  currency  can  never  be  in  equilibrium  with  the 
values  of  the  community,  because  it  has  no  real  value  in  itself. 
One  day,  money  (so  called)  may  be  so  abundant  as  to  tempt 
multitudes  to  speculation ; the  next  week,  it  may  be  apparently 
so  scarce  as  to  cause  a panic.  It  is  needless  to  give  examples  of 
what  has  occurred  so  often  in  our  midst.  We  can  all  under- 
stand that,  when  prices  are  doubled,  it  takes  twice  as  much 
currency  to  pay  for  the  same  things ; and  when  many  are  specu- 
lating, they  require  a great  deal  of  money  to  speculate  with.  If 
our  prices  were  based  on  steady  specie  values,  the  amount  of 
currency  required  would  vary  but  little,  and  the  banks  could 
no  longer  lend  their  credit  beyond  their  ability  to  redeem  it. 
When  we  wanted  more  money,  we  should  obtain  it  in  a legiti- 
mate way,  in  exchange  for  other  commodities ; and  when  we 
had  too  much,  other  countries  would  readily  buy  the  surplus. 

5.  As  regards  the  government  which  issues  or  sanctions  it 
without  absolute  necessity,  an  irredeemable  and  excessive  cur- 
rency is  utterly  dishonest.  We  may  as  well  call  things  by  their 
right  names.  A private  individual  who  issues  checks  which  are 
not  paid,  or  signs  promises  payable  on  demand  which  are  not 
redeemed,  when  he  can  obtain  the  means  of  redeeming  them , is  a 
rogue  and  a swindler.  Now  there  is  only  one  law  of  right; 
and  what  is  wrong  in  the  citizen  must  be  wrong  in  the  govern- 
ment. When  it  promises  to  pay,  it  ought  to  pay ; and,  unless  it 
can  show  that  it  cannot  pay,  and  cannot  even  begin  to  pay,  it 
cannot  honestly  refuse  to  do  so. 

HOW  TO  GET  RID  OF  AN  INFLATED  CURRENCY. 

This,  after  all,  is  the  real  question  before  us.  There  are 
many  who  admit  that  specie  is  the  true  standard  of  value,  and 
that  it  is  most  desirable  to  return  to  it,  if  it  were  possible.  But 
how  to  do  it  is  a question  they  feel  they  cannot  answer. 

Let  us  first  settle  what  is  wanted.  It  is,  to  have  our  money 
values  replaced  substantially  in  the  equilibrium  which  existed 
before  the  war ; so  that  the  people  shall  have  no  more  money 
than  is  needed  to  effect  their  payments  and  exchanges,  measured 
in  specie  ; and  that  all  the  paper  money  or  bank  credit  used  for 


15 


this  purpose  shall  be  exchangeable  for  gold  coin  on  demand,  but 
shall  at  the  same  time  be  so  entirely  on  a par  with  gold,  that,  in 
general,  the  gold  will  not  be  called  for. 

Of  course  we  cannot  certainly  tell  how  much  money  could 
thus  be  kept  employed ; but  it  seems  probable  that  the  amount 
would  not  vary  much  from  what  it  was  before  the  war,  when 
the  paper  part  was  less  than  $500,000,000.  If  so,  the  present 
amount  of  $1,000,000,000  must  be  reduced  about  one-half,  and 
the  $200,000,000,  assumed  to  be  held  in  reserve,  must  be,  in 
part  at  least,  replaced  by  coin,  of  which  a large  part  is  in  fact 
already  on  hand.  Along  with  this  diminution  of  currency  must 
come  a reduction  of  prices  of  all  kinds  of  commodities,  so  that 
the  smaller  amount  of  money,  and  smaller  incomes,  will  in  fact 
purchase  as  many  commodities  as  the  larger  amounts  did  before. 
How  shall  this  change  be  brought  about? 

There  are  three  conceivable  ways  of  returning  to  specie  pay- 
ments and  specie  values ; that  is,  to  a state  of  things  in  which 
all  values  are  measured  by  gold  coin,  and  all  the  promises  which 
pass  for  money  can  be  promptly  redeemed  in  coin.  Let  us  con- 
sider frhem,  each  in  turn. 

1.  The  Government  and  the  banks  might,  by  borrowing  and 
saving,  accumulate  in  their  vaults  so  large  an  amount  of  coin, 
that  they  could  safely  undertake  to  redeem  all  their  promises 
which  might  be  presented.  Some  think  $200,000,000  of  coin, 
or  even  less,  would  suffice  for  this  purpose ; others  would  call 
for  $400,000,000  or  $500,000,000.  If  our  currency  were  in 
equilibrium  with  specie,  the  amount  now  on  hand  would  be 
enough ; for,  as  we  have  shown,  there  would  be  no  reason  for 
exchanging  paper  for  gold,  and,  in  fact,  a much  smaller  quantity 
in  1861  was  abundantly  sufficient. 

But  this  equilibrium,  we  know,  does  not  exist.  Almost  every 
thing  we  use  or  consume  can  be  bought  much  cheaper  abroad 
with  gold  dollars  than  at  home  with  paper  dollars.  Therefore, 
if  our  paper  dollars  could  all  be  exchanged  for  coin,  large 
amounts  would  be  so  exchanged,  and  the  coin  would  be  sent 
abroad  to  pay  for  commodities  of  all  descriptions,  which,  being 
imported,  would  over-supply  our  markets,  and  cause  great  stagna- 
tion, decline  in  prices,  and  the  ruin  of  multitudes  of  merchants. 
At  the  same  time,  the  withdrawal  of  so  much  money  from  circu- 


16 


lation  would  make  money  comparatively  scarce ; while  the  de- 
cline in  prices,  and  shock  to  credit,  would  make  it  difficult  to 
borrow  what  remained.  In  short,  the  inevitable  result  of  this 
plan  would  be  a very  great  and  very  sudden  change  in  the 
volume  or  amount  of  currency,  on  the  circulation  of  which  all 
our  daily  transactions  depend  ; and  such  a change  must  of  neces- 
sity disturb  the  whole  framework  of  society.  It  would  be  some- 
thing like  emptying  a large  basin  by  overthrowing  the  walls, 
instead  of  opening  the  sluice-gates.  # 

It  is  perhaps  supposed  by  those  who  advocate  this  course,  that, 
during  the  time  necessary  to  accumulate  such  a large  amount  of 
specie,  the  change  referred  to  will  be  gradually  accomplished ; 
that  currency  will  be  hoarded,  and  prices  will  decline,  in  antici- 
pation of  the  moment  when  all  credit  and  all  values  will  be 
again  measured  by  gold. 

But  this  is  simply  impossible.  Most  of  the  people  already  hold 
all  the  currency  they  can  afford  to  hold.  They  are  compelled 
to  part  with  it  about  as  fast  as  they  receive  it ; and,  at  present 
inflated  prices,  there  is  none  to  spare.  On  the  other  hand,  if 
prices  begin  to  decline,  currency  becomes  redundant,  and  those 
who  hold  it  are  compelled  to  employ  it  in  speculation,  which,  as 
we  have  shown,  causes  prices  again  to  advance.  Instead,  there- 
fore, of  a steady  and  gradual  approximation  to  a specie  standard, 
we  should  have  an  incessant  series  of  fluctuations,  worse  even 
than  those  which  have  now  for  years  afflicted  us ; and,  when 
the  time  came  for  resuming  specie  payments,  we  should  un- 
doubtedly find  ourselves  unprepared,  in  every  way,  to  meet  it. 

Even  if  this  plan  were  feasible  and  safe,  it  would  be  the  most 
burdensome  that  could  be  devised ; keeping  all  our  industrial 
resources  and  energies  cramped  by  the  baneful  operation  of  an 
irredeemable  currency,  while  compelling  us,  slowly  and  pain- 
fully, to  accumulate  at  home  a vast  mass  of  specie,  at  least 
three-fourths  of  which  would,  by  the  inevitable  laws  of  trade, 
be  sent  abroad  within  a few  weeks  or  months  after  specie  pay- 
ments were  resumed. 

2.  We  might  leave  the  whole  question  to  settle  itself,  trusting 
to  time,  and  the  growth  of  wealth  and  population,  to  supply  a 
sufficient  demand  for  paper  currency  to  bring  it  up  to  the  level 
of  coin.  If  thirty  millions  of  people  could  use  four  hundred  and 


IT 


fifty  millions  of  paper  credit  on  a par  with  gold,  how  many 
people,  equally  rich,  would  it  take  to  use  above  a thousand  mil- 
lions ? Obviously,  more  than  twice  as  many ; so  that  the  process 
must  be  expected  to  last  at  least  a quarter  of  a century,  suppos- 
ing all  to  work  right.  Are  we  prepared  to  submit  to  these  evils 
for  that  length  of  time,  or  for  one-half  of  it  ? 

Even  this  alternative,  however,  would  be  comparatively  toler- 
able, if  we  could  be  sure  of  a steady  and  gradual  progress 
towards  specie  values  and  lower  prices.  But  of  this,  unfortu- 
nately, there  is  no  chance.  As  in  the  past,  so  in  the  future, 
the  absence  of  any  real  standard  will  perpetually  unsettle  all  val- 
ues. Prices  will  be  driven  up  by  speculation,  till  paper  money 
will  become  so  scarce  that  even  honest  but  ignorant  men  will 
clamor  for  more  currency;  and  the  clamor  may  not  long  be 
resisted.  When  the  evil  shall  have  become  too  great  to  be 
borne,  specie  values  will  be  restored,  — but  how?  With  an 
increased  volume  of  paper  currency,  with  a country  impover- 
ished, and  a people  demoralized  by  the  pretence  of  fictitious 
wealth,  will  the  national  obligations,  already  called  in  question, 
be  honorably  met,  though  with  far  greater  difficulty  than  now  ? 
Or  shall  we,  on  the  plea  of  necessity,  resort  to  partial  bankruptcy 
or  repudiation,  and  repay  dollars  with  fractions  of  dollars  ? 

The  truth  is,  that,  in  such  matters,  delay  is  not  only  useless 
and  dangerous,  but  suicidal.  Every  year  of  irredeemable  cur- 
rency makes  us  earn  less,  save  less,  work  less,  spend  more  and 
waste  more,  than  we  should  have  done  with  a sound  standard  of 
value,  and  therefore  relatively  impoverishes  the  country,  and 
demoralizes  the  people.  It  is  this,  and  not  the  burden  of  taxa- 
tion, which  retards  our  progress,  which  closes  our  factories, 
desolates  our  ship-yards,  and  drives  our  vessels  from  the  ocean. 
And  is  this  an  evil  to  be  remedied  by  retaining  it  to  the  last  pos- 
sible moment? 


THE  TRUE  REMEDY. 

3.  There  remains  one  way  of  return  to  a sound  currency, 
which  threatens  no  disaster,  and  presents  no  serious  difficulty ; 
yet  ignorance,  prejudice  and  selfishness  have  made  its  very 
name  a by-word  of  reproach,  — how  unjustly,  we  shall  hope  to 
show. 


3 


18 


What  is  contraction  ? It  is  simply  the  gradual  withdrawal 
from  circulation  of  so  much  of  our  existing  paper  currency  as  is 
proved  to  be  excessive,  because  it  will  not  circulate  on  a par  with 
gold.  The  necessary  and  evident  effect  of  such  a withdrawal  is 
to  make  that  which  remains  more  valuable,  until  it  shall  at  last 
be  equal  to  gold  coin,  as  it  was  six  or  seven  years  ago.  When 
that  point  is  reached,  the  whole  work  is  done. 

How  does  this  process  look  from  the  side  of  the  Government  ? 
If  any  honest  private  debtor  owed,  on  demand,  more  than  he 
could  pay,  would  he  not  be  glad  to  restore  his  credit  by  calling 
in  these  demand-notes,  and  getting  the  term  of  payment  ex- 
tended ? Would  it  be  honest,  would  it  be  decent,  for  him  to  say 
to  his  creditors  : “ It  is  true  that  the  forced  circulation  of  my 
unredeemed  notes  and  checks  is  causing  the  greatest  embarrass- 
ment, both  to  myself  and  to  my  involuntary  and  innocent  credi- 
tors. It  is  true,  that  there  are  plenty  of  capitalists  able  and 
willing  to  redeem  them,  and  wait  my  convenience  for  their  pay- 
ment, with  moderate  interest ; but  I prefer  to  save  this  interest, 
and  to  throw  the  loss  upon  others,  until  some  lucky  chance 
enables  me  to  get  rid  of  my  obligations  without  any  cost  to 
myself  ? ” And  how  wrould  the  case  be  aggravated,  if  the  debtor 
were  at  the  same  time  the  legal  agent  of  the  creditors  whose 
interests  he  was  thus  sacrificing  ! 

But  are  the  obligations  of  a government  less  sacred  than  those 
of  a private  individual  ? Being  itself  above  the  coercion  of  law, 
should  it  not  be  a law  unto  itself?  Having  issued  as  “ lawful 
money”  some  $400,000,000  of  notes,  payable  on  demand,  at  a 
definite  place,  in  dollars,  that  is,  in  gold  coin,  and,  being  unable 
to  redeem  these  promises,  is  it  not  bound  in  honor  to  allow  every 
holder  of  them  to  claim  interest  on  his  unpaid  debt,  or,  in  other 
words,  to  bring  them  into  the  treasury,  and  receive  in  exchange 
a bond  bearing  interest  ? This  is  what  is  called  “ funding  ” a 
debt,  and  is,  to  a government,  what  an  “ extension  ” is  to  a 
private  debtor.  Can  any  one  object  to  this  ? and  can  any  honest 
debtor,  public  or  private,  do  less  ? 

How  does  such  a process  look  from  the  side  of  the  people  ? 
Its  effect,  of  course,  must  be  to  relieve  them  of  a portion  of 
the  paper  currency  which  they  have  been  accustomed  to  call 
“ money.”  And  we  have  already  seen  that  it  is  precisely  the 


19 


over-issue  of  this  currency  which  has  caused  all  our  troubles- 
Is  it  not  plain,  that  the  only  possible  remedy  is  to  diminish  it, 
until  there  shall  be  no  more  of  it  than  the  people  can  afford  to 
keep,  and  the  banks  to  redeem,  on  a par  with  gold  coin  ? And 
this  process  must  be  gradual,  as  we  have  already  shown,  because 
it  involves  a great  change  in  nominal  values,  which  cannot  be 
effected  suddenly  without  disaster. 

But  will  a gradual  contraction  of  the  currency  deprive  any 
one  of  money,  or  even  of  paper  currency,  to  which  he  has  any 
legitimate  claim  ? Of  course,  no  one  can  be  compelled  to  part 
with  that  which  is  his  own.  And  if  he  prefers  to  exchange  it 
for  a Government  bond  bearing  interest  (that  is,  to  have  it 
funded),  no  one  can  complain.  The  Government  itself  cannot 
exercise  any  compulsion,  for  its  revenue  from  taxation  barely 
suffices  to  meet  its  current  expenses.  The  only  sufferers  by 
contraction  would  seem  to  be  those  who  are  compelled  to  borrow 
currency  to  pay  their  debts,  # and  who  would  naturally  find  a 
smaller  amount  of  currency  to  borrow  from.  But,  if  these  bor- 
rowers are  solvent,  they  have  property  which  they  can  sell  for 
currency,  and  so  pay  their  debts,  long  before  the  gradual  con- 
traction we  advocate  could  cause  them  serious  inconvenience  or 
loss.  Their  next  purchases  would  be  made  at  lower  prices,  and 
would  require  less  currency  to  meet  them.  In  a word,  their 
wants,  and  the  means  of  supplying  them,  would  diminish  to- 
gether. 

But,  suppose  these  borrowers  who  oppose  contraction  should 
happen  to  be  great  speculators  in  stocks,  in  land,  in  breadstuff’s, 
in  cotton,  &c.,  — what  then?  Why,  then,  we  say  that  the 
sooner  they  are  broken  down  the  better.  What  right  has  any 
man,  or  set  of  men,  to  use  fictitious  values  to  create  an  artificial 
scarcity  of  the  necessaries  of  life?  and  what  right  has  any  gov- 
ernment to  abet  and  sanction  such  conduct  ? It  is  easy  to  see 
that  the  only  class  of  the  community  which  will  really  suffer  by 
contraction  is  that  of  speculators  and  gamblers,  whose  business 
it  is  to  profit  by  the  incessant  fluctuations  of  a debased  currency. 
But  every  dollar  so  made  is  stolen  from  the  legitimate  earnings 
of  honest  industry.  The  capitalist,  the  laborer,  the  manufac- 
turer, the  artisan,  the  merchant,  all  who  live  by  supplying  the 
real*wants  of  the  community,  — these  all  need,  and  should  de- 


go 


sire,  a sound  and  uniform  measure  of  value,  and  they  lose  by 
every  day’s  delay  in  restoring  it. 

Let  us  consider  for  a moment  what  resources  of  currency  will 
remain  to  us,  even  when . “ contraction ” is  completed.  Before 
the  war,  there  was,  practically,  no  limit  to  the  issue  of  currency, 
except  the  necessity  of  keeping  it  at  its  proper  value  by  redeeming 
it  in  coin ; yet  the  whole  amount,  as  we  have  seen,  barely  came 
up  to  about  $200,000,000  in  notes,  and  less  than  $300,000,000 
in  “ deposits.”  Now,  there  are  $300,000,000  of  notes  alone,  — 
all  which,  with  deposits  to  correspond,  may  be  kept  in  circula- 
tion, provided  they  can  he  kept  at  par  with  gold  coin.  Moreover, 
there  is  every  reason  to  suppose,  that  even  after  greenbacks  are 
redeemable  in  coin,  a considerable  amount  of  them  will  still 
circulate  instead  of  coin  and  on  a par  with  it,  because  they  will 
be  considered  equally  safe,  and  more  convenient ; and  long 
before  any  addition  to  these  amounts  will  be  needed,  we  may 
expect  to  have  a free  banking  law,  allowing  a practically  unlim- 
ited issue  of  paper,  subject  to  prompt  redemption  in  specie. 

It  is  a common  argument  of  the  opponents  of  contraction,  that 
the  currency  of  a country  should  be  “ elastic ; ” that  is,  that  it 
should  have  the  power  to  expand  and  contract  according  to  the 
demands  of  trade.  This  is  very  true,  but  it  tells  directly  against 
their  views.  A currency  which  represents  real  value  is  always 
and  necessarily  elastic.  That  which  is  based  on  a mere  uncer- 
tain future  promise  has  no  element  of  elasticity.  The  amount  of 
the  former  is  determined  by  the  amount  of  values  to  be  ex- 
changed by  it ; that  of  the  latter,  being  already  too  large,  cannot 
ever  be  safely  increased,  and  cannot  always  be  prudently  dimin- 
ished. The  only  resource  is  to  get  back  to  an  elastic,  real  cur- 
rency as  soon  as  possible.  Our  financial  situation  may  be 
compared  to  that  of  a vessel  aground,  or  to  a dislocated  joint, 
which  can  have  no  “ elasticity”  of  movement  or  repose,  until, 
with  some  strain  and  pressure,  it  has  been  restored  to  its  normal 
condition. 

It  is  true  that  there  are  times,  when  even  the  withdrawal  of 
$4,000,000  of  currency  in  a month  may  cause  distress,  and  may 
therefore  be  inexpedient ; but  there  are  other  times  when  a much 
larger  amount  could  be  well  spared.  We  have  seen  more  than 
this  locked  up  by  speculators  in  a single  day,  for  the  avowed 


21 


purpose  of  creating  scarcity  for  selfish  ends.  If  we  can  submit 
to  that,  shall  we  complain  of  the  much  more  moderate  and 
gradual  process  which  is  indispensable  to  our  safety,  and  essen- 
tial to  the  maintenance  of  our  national  honor  ? 

But  even  this  objection  may  be  obviated  by  making  the  con- 
traction purely  voluntary  on  the  part  of  the  people.  The 
Government  might  offer  to  all  a ten-forty  bond,  at  par,  payable, 
principal  and  interest,  in  gold,  at  five  per  cent,  in  exchange  for 
legal-tender  notes,  with  a distinct  pledge,  that  the  notes  thus 
received  should  not  be  re-issued,  except  by  special  act  of  Con- 
gress. This  loan  would  not  attract  capital  too  rapidly,  but  it 
would  probably  begin  at  once  to  bring  in  a slow  but  steady 
stream  of  greenbacks,  causing  a constant  demand  for  them  from 
all  parts  of  the  country.  This  would  compel  the  banks  to 
diminish  their  loans,  and  would  thus  lessen  the  resources  of 
speculators,  who  would  be  obliged  to  sell  the  merchandise  they 
have  been  holding  back  from  consumption ; thus  prices  would 
decline,  and  less  currency  would  be  needed.  Should  the  pro- 
cess go  on  too  rapidly,  and  currency  become  inconveniently 
scarce,  the  bonds  would  fall  below  par,  and  no  more  would  be 
taken  until  the  decline  of  prices  should  have  restored  the  equi- 
librium, and  made  “ money”  again  easy.  When  it  became  cer- 
tain that  this  was  the  fixed  policy  of  the  Government,  the  bonds 
would  be  sought  abroad,  and  our  stock  of  gold  would  be  aug- 
mented. The  price  of  gold  would  decline,  but  our  credit  abroad 
would  rise  in  proportion,  till  (probably  within  two  or  three  years, 
at  farthest)  our  gold  coin  would  be  at  par  at  home,  and  our  five- 
per-cent  bonds  at  par  abroad.  Then  specie  payments  might  be 
safely  resumed.  In  the  mean  time,  all  prices  having  declined, 
capital  and  labor  would  again  be  at  work  in  concert ; agriculture, 
manufactures  and  commerce  would  be  revived ; and  the  rapid 
development  of  national  wealth,  now  so  greatly  checked,  would 
be  resumed. 

Such,  by  the  necessary  working  of  economical  laws,  must  be 
the  natural  result  of  a gradual  and  judicious  funding  of  the  legal- 
tender  currency.  We  have  suggested  one  simple  method  of 
accomplishing  this  object ; but  the  particular  method  is  of  com- 
paratively small  importance,  provided  the  thing  itself  be  done. 
The  only  essential  conditions  are,  that  there  be  no  needless 


22 


delay  and  no  imprudent  haste  in  carrying  out  the  process ; in 
other  words,  that  it  shall  be  moderately  but  steadily  going  on, 
except  when  the  state  of  the  money  market  may  render  a tem- 
porary cessation  expedient. 

It  has  been  argued,  that  a mere  contraction  of  the  legal-tender 
currency  would  deprive  the  banks  of  the  means  of  redeeming 
their  own  currency,  and  so  render  their  position  unsafe  by  under- 
mining their  basis,  without  diminishing  the  superstructure.  But 
the  banks  will  have  fair  warning,  and  ample  time  to  provide 
themselves  with  specie ; and  how  else  can  they  be  made  to  pro- 
cure it,  but  by  gradually  withdrawing  all  other  means  of  redemp- 
tion ? In  specie-paying  times,  the  operation  was  exactly  the 
same, — only  their  specie  was  drawn  out  by  the  balances  of  for- 
eign trade.  Moreover,  they  have  the  peculiar  advantage  of 
receiving  large  amounts  of  coin,  as  interest  on  their  Government 
bonds,  which  they  might  easily  and  justly  be  compelled  by  law 
to  hold  in  reserve  from  this  time  forward. 

Many  small  schemes  for  a return  to  specie  payment  have  been 
brought  forward ; such  as  the  partial  payment  of  custom-house 
duties  in  greenbacks,  the  issue  of  various  intermediate  currencies, 
&c. ; but  they  are,  for  the  most  part,  either  unjust  or  impracti- 
cable, or  at  least  involve  no  important  principle,  and  need  not 
be  here  discussed. 

Many  persons  have  argued,  that  mstead  of  withdrawing 
greenbacks,  the  banks  should  be  compelled  to  withdraw  their 
own  notes.  The  inexpediency,  and  even  injustice,  of  this  course 
might  be  shown  on  various  grounds,  such  as  these  : that  it  would 
be  a virtual  breach  of  faith ; that  it  would  break  up  our  present 
banking  system,  and  probably  cause  great  financial  embarrass- 
ment ; that  it  would  throw  a vast  amount  of  Government  bonds 
upon  the  market,  and  endanger  the  national  credit.  But  it  is 
enough  to  say,  at  present,  that  it  is  the  first  duty  of  the  Govern- 
ment to  make  good  its  own  promises,  before  meddling  with  those 
of  others,  which  are  contingent  upon  its  own.  Again,  many 
have  contended,  that  by  funding  the  legal-tender  notes,  the 
Government  will  lose  a large  amount  of  interest,  which  it  now 
saves.  To  this  there  are  two  plain  answers:  First,  the  Govern- 
ment has  no  more  right  than  individuals  have  to  borrow  money 
by  compulsion,  and  without  paying  interest.  Secondly,  the  nomi- 


23 


nal  gain  of  interest  is  offset  a hundred  times  by  the  loss  and 
injury  entailed  on  the  Government  and  the  whole  people,  by 
compelling  them  to  employ  a standard  of  value  which  is  no 
standard,  a measure  which  is  no  measure,  a promise  which  is 
never  fulfilled,  a currency  which  fluctuates  from  day  to  day,  and 
which  speculator^  and  sharpers  are  continually  using  to  defraud 
the  people  of  their  earnings. 

In  conclusion,  it  may  be  profitable  to  inquire  briefly,  what  ter- 
mination may  be  reasonably  anticipated  to  the  present  state  of 
things,  if  the  policy  of  contraction  is  definitely  abandoned  ? 

The  experience  of  the  past  does  not  warrant  the  expectation 
expressed  by  some,  that  if  the  currency  is  simply  left  on  its 
present  basis,  it  will  before  long  be  all  wanted,  and  on  a par 
writh  gold.  We  have  shown  that  its  amount  is  fully  double  what 
it  ever  was  on  a specie  basis ; and  as  banking  facilities  increase, 
less  and  less  currency  will  be  required  in  proportion  to  the 
amount  of  wealth  and  population.  It  is  not  at  all  probable  that, 
for  many  years  hence,  we  shall  need  as  much  paper  currency  as 
we  now  have  in  circulation,  unless  it  continues  depreciated.  On 
the  other  hand,  the  necessities  of  commerce  and  the  laws  of 
trade  will  compel  us  ultimately  to  return  to  a sound  standard  of 
value,  by  one  of  two  roads,  — public  repudiation  or  private  bank- 
ruptcy. The  former  has  been  exemplified  in  the  history  of 
France,  Russia  and  Austria ; but  their  repudiation  was  in  fact 
compulsory,  being  the  result  of  national  insolvency.  The  latter 
was  the  case  of  Great  Britain,  and  is  peculiarly  instructive,  from 
its  close  analogy  to  our  own,  at  least  up  to  the  present  time. 
The  British  Parliament,  like  our  own  Congress,  refused  to  en- 
force a contraction  of  their  depreciated  currency ; and  the  result 
was  a continual  expansion  of  paper  credit,  until  at  last  the  mass 
of  fictitious  values  became  too  large  to  be  supported.  The  prices 
of  breadstuff’s  (the  great  basis  of  all  values)  broke  down,  and  the 
whole  superstructure  fell  with  it.  Hundreds  of  banks,  and  mul- 
titudes of  farmers,  were  ruined  ; and  such  an  involuntary  “ con- 
traction ” of  currency  was  produced,  that  specie  values  were 
speedily  and  easily  restored. 

It  is  not  difficult  to  trace  the  probable  course  of  either  alterna- 
tive among  ourselves.  So  long  as  the  policy  of  contraction  was 
definitely  recognized  by  Congress  (though  begun  too  late,  and 


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2 061967292 


24 


greatly  hindered  by  the  illegitimate  use  of  compound-interest 
notes,  and  by  the  needless  limitation  of  $4,000,000  a month), 
speculation  was  checked,  and  there  was,  on  the  wfiiole,  an  ample 
supply  of  currency  for  all  necessary  purposes.  But  no  sooner 
was  all  contraction  stopped  than  speculators  took  courage,  and 
already  the  volume  of  currency  proves  insufficient  for  their 
operations.  Of  course,  while  prices  continue  to  advance,  this 
scarcity  must  increase,  and  at  length  will  come  a lpud  call  for 
“ more  currency,”  which  currency,  if  issued,  will  at  once  be 
absorbed  by  speculative  borrowers,  thus  raising  prices  still 
higher,  and  adding  fuel  to  the  flame.  Another  and  another 
issue  will  be  called  for,  until  the  intoxication  is  followed  by 
collapse,  and  partial  repudiation  must  follow. 

If,  on  the  other  hand,  the  Government  and  the  people  have 
sufficient  honesty  and  firmness  to  resist  all  further  issues  of  cur- 
rency, the  present  advance  in  prices  will  naturally  be  followed 
by  a re-action,  and  that  again  by  inflation,  until  in  due  time  (and 
not  a long  time)  the  same  sudden  and  violent  remedy  of  a finan- 
cial collapse  overtakes  us,  as  it  did  Great  Britain  in  1813.  The 
present  course  of  affairs  is  enriching  the  rich,  pauperizing  the 
poor,  gradually  impoverishing  the  masses  of  working  people, 
depressing  manufactures,  ruining  commerce,  discouraging  honest 
labor,  which  creates  wealth,  and  encouraging  speculation,  which 
dissipates  wealth.  But  there  remains  one  precious  resource, 
which  speculators  cannot  monopolize.  Land  is  still  abundant, 
fertile,  and  comparatively  cheap.  The  laborer  can  always  earn 
his  living  by  producing  food  for  others  ; and  the  very  aggrava- 
tion of  the  evil  will  thus  accelerate  the  remedy.  We  hear  from 
time  to  time  of  the  increase  of  cultivation  and  the  anticipations 
of  larger  crops  ; and  the  first  year  which  sees  abundant  harvests, 
both  here  and  in  Europe,  will  probably  witness  the  greatest 
collapse  of  currency  ever  known  in  this  or  any  country,  unless  it 
be  averted  by  timely  contraction,  — a collapse  caused  not  by  a 
ruinous  destruction  of  real,  but  by  the  disappearance  of  fictitious 
values.  All  the  banks  and  all  the  capital  and  credit  of  the  West 
could  not  sustain  the  prices'  of  breadstuff's,  under  the  circum- 
stances we  have  supposed,  or  prevent  a decline  which  must  ruin 
multitudes.  We  have  in  reality  no  alternative.  We  must  either 
submit  to  moderate  and  gradual  contraction  now,  or  we  cannot 
escape  a ruinous  crisis  hereafter. 


